On why Facebook borrowed to buy hardware

Yesterday I queried the Facebook strategy of owning it’s own datacentre infrastructrue – especially given it’s (hoped for) growth and the prevalence of other scalable, cloud based third party hosting solutions.

Henry Blodget asks another question in this post this morning. The main thrust of his post is that the MS deal last year valued Facebook at $15bill. The easiest for them to pay for the hardware they need would be to flip off a little more stock in return for cash. Henry contends that the reason they’re borrowing (which puts all the shareholders at risk if Facebook ever loses value) is that they’re not able to sell equity at the sort of valuation they need to to avoid people getting fearful that the entire business was over-hyped.

Short term it’s no big deal, but at some stage the shareholder will start to squirm that debt keps being taken on to fund growth. Very soon the wolves will start baying demanding either;

A clear monetisation path (and at the sort of rates that are commensurate with the valuation)

An equity sell down (which needs to realistically be at least at the most recent sell down valuation

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

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About Me

Ben Kepes is a business leader, a technology evangelist, an entrepreneur, and a commentator. Ben covers the convergence of business and technology.